Do Financial Markets Value Quality of Fiscal Governance?

IMF Working Papers, October 11, 2019

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Do Financial Markets Value Quality of Fiscal Governance?

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Bibliographic details

• Authors: Kady Keita, Gene L. Leon, Frederico Lima
• Published: October 11, 2019
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781513516127.001

Main findings

• Stronger fiscal governance is associated with improvements in several indicators of market access:
  • a higher likelihood of issuing sovereign bonds
  • a higher likelihood of having a sovereign credit rating
  • receiving stronger credit ratings
  • obtaining lower spreads
• Using more granular information from Public Expenditure and Financial Accountability (PEFA) assessments for 89 emerging and developing economies, similar indicators of market access are correlated with sound public financial management practices, especially those that improve:
  • budget transparency and reporting
  • debt management
  • fiscal strategy

Data and scope

• Sample: 89 emerging and developing economies (PEFA assessments)
• Publication type: IMF Working Paper
• Authors: Kady Keita, Gene L. Leon, Frederico Lima
• Publication date: October 11, 2019

Policy-relevant implications

• Strengthening fiscal governance can improve external market access via multiple channels:
  • increased ability to issue sovereign bonds
  • higher probability of obtaining and improving sovereign credit ratings
  • reductions in sovereign borrowing spreads
• Policy priorities suggested by the PEFA-linked evidence:
  • enhance budget transparency and reporting practices
  • strengthen debt management frameworks
  • develop and communicate clear fiscal strategy

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